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1/7
This article makes an important systemic point about the unsustainable relationship between debt and growth in China: “As China moves to tackle excessive borrowing in the real estate sector, it is walking a tightrope between providing... https://www.scmp.com/economy/china-economy/article/3104366/chinas-three-red-lines-strike-delicate-balance-between?utm_source=Twitter&utm_medium=share_widget&utm_campaign=3104366">https://www.scmp.com/economy/c...
This article makes an important systemic point about the unsustainable relationship between debt and growth in China: “As China moves to tackle excessive borrowing in the real estate sector, it is walking a tightrope between providing... https://www.scmp.com/economy/china-economy/article/3104366/chinas-three-red-lines-strike-delicate-balance-between?utm_source=Twitter&utm_medium=share_widget&utm_campaign=3104366">https://www.scmp.com/economy/c...
2/7
cash-strapped local governments with revenues from land sales and keeping a lid on rising house prices.”
The regulators, as the article points out, are concerned because the real estate sector is over-leveraged and is fueling what everyone knows is a real estate bubble.
cash-strapped local governments with revenues from land sales and keeping a lid on rising house prices.”
The regulators, as the article points out, are concerned because the real estate sector is over-leveraged and is fueling what everyone knows is a real estate bubble.
3/7
But if they clamp down on further borrowing, this would sharply reduce the revenues of overly-indebted local governments and would force them to borrow even more to keep growth in their jurisdictions from dropping sharply. Because local governments are likely to be...
But if they clamp down on further borrowing, this would sharply reduce the revenues of overly-indebted local governments and would force them to borrow even more to keep growth in their jurisdictions from dropping sharply. Because local governments are likely to be...
4/7
required to take on responsibility for insolvent real estate developers, in other words, regulators have to decide between either increasing their contingent liabilities or increasing their direct liabilities.
required to take on responsibility for insolvent real estate developers, in other words, regulators have to decide between either increasing their contingent liabilities or increasing their direct liabilities.
5/7
The point is that when the regulators speak about “controlling” debt, what they are really discussing is changing the locus of debt creation. In this case if real estate borrowers are forced to borrow less, then local government must borrow more. They cannot avoid this...
The point is that when the regulators speak about “controlling” debt, what they are really discussing is changing the locus of debt creation. In this case if real estate borrowers are forced to borrow less, then local government must borrow more. They cannot avoid this...
6/7
tradeoff as long as Beijing insists on a GDP growth rate that sharply exceeds the real underlying growth rate of the economy – unless of course Beijing were to change tack dramatically and force local governments to liquidate assets, in an amount equal to at least...
tradeoff as long as Beijing insists on a GDP growth rate that sharply exceeds the real underlying growth rate of the economy – unless of course Beijing were to change tack dramatically and force local governments to liquidate assets, in an amount equal to at least...
7/7
2-3% of GDP, and use the proceeds to fund growth. But this, of course, is politically too hard to pull off, or at least it has been until now.
2-3% of GDP, and use the proceeds to fund growth. But this, of course, is politically too hard to pull off, or at least it has been until now.
